Editors' pick: Originally published Jan. 21.
The S&P 500 is down nearly 9% in January. The market is off to one of its worst starts ever.
The VIX Volatility Index is spiking, indicating that the stock market is becoming more turbulent. Positive returns on most equities are very much in doubt for 2016.
With global markets threatening another bear market, investors should fortify their portfolios with safe-harbor business that will do well in any economic environment.
The three blue chip stocks in this article have a long history of paying steady or rising dividends through recessions. All three sell low-priced goods consumers buy whether the economy is booming or busting.
Finally, all three businesses outlined in this article have dividend yields of 3% or higher to provide you with steady or rising passive income while markets whipsaw less prepared investors.MCD data by YCharts
Safe-Harbor Stock No. 1: McDonald's (MCD)
Here's an interesting fact about McDonald's:
From 2007 through 2009, McDonald's stock generated total returns of 55.9% for shareholders, while the S&P 500 had total returns of -15.9%.
McDonald's is the most recession-resistant Dividend Aristocrat. The company's earnings-per-share through the Great Recession are shown below to illustrate this point:
- 2007 earnings-per-share of $2.91
- 2008 earnings-per-share of $3.67
- 2009 earnings-per-share of $3.98
McDonald's tends to do well during difficult market times. The last six months have been no exception, with McDonald's is up 21%, while the S&P 500 is down 11%. That's out-performance of over 30 percentage points in six months.
Why does McDonald's tend to do well during difficult economic times? Because the company is one of the cheapest fast food options available. When times get tough, people often trade down. Someone who would normally go to "dine in" restaurant with a $10 to $15 price point per person may trade down to a lower priced option. When people think low-priced fast-food, they think McDonald's.
McDonald's is a known commodity. When you order a Big Mac, you know what you are getting. The company has over 36,000 locations all around the world. Surprisingly, McDonald's generates more income in Europe than in the United States.
The company is currently offering investors a 3.1% dividend yield. The company has paid increasing dividends for 39 consecutive years -- making it very likely that shareholders will see rising dividend income from McDonald's over the next several years, regardless of what the market does.